Tag Archive for: real estate leverage

Unsecured Lines of Credit for Real Estate: Explained

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Don’t be afraid. Unsecured lines of credit can be a valuable tool for real estate investors.

0% credit cards scare some people off. When used correctly for a business, however, there’s nothing to be nervous about.

Unsecured lines of credit can be a great tool to lower your cost and open up other forms of lending. In this post, we’ll go over how to successfully use 0% business credit cards and other unsecured credit to gain leverage for real estate investing.

Why We Recommend Unsecured Lines of Credit

At The Cash Flow Company, we’ve used business credit cards for our investments for over 12 years. The people here have used them, we’ve helped other people use them, and we understand first-hand that this is a great tool for investors.

Why are they so great?

Typically, the more money you have to put into a transaction, the better the terms you’re going to get on a loan. When you show that you have other lines of credit (or cash) available, lenders can open up doors that are otherwise closed for you.

When it comes to lines of credit – why pay 20%+ interest rates when there are 0-3% card options available to you?

Let’s look at three ways these credit cards and lines of credit can energize your business.

1. Using for Reserves or Down Payment

If you have unsecured lines, or even 0% credit cards, and move the money over to accounts, then you could use those funds as reserves or a down payment.

The more money you can put in as a down payment, the better your rate, terms, and cash flow will be. Maybe funds from a credit card could allow you to put 10% rather than 5% down. This change could lower your interest rate by 1-2%.

Lenders give better rates to lower loan-to-value deals – especially for bridge loans. Take advantage of this by using unsecured credit to get more money.

2. Saving Money on Interest

Typical interest rates on credit cards are around 19-29%.

Say you put $25,000 on a 24% credit card for an investment project. Over the course of a year, that’s about $6,000 in interest. Multiply that by however many projects you complete in a year, and the costs add up fast.

0% business credit cards just make sense. With these, you can pay $0 in interest for your first year or two, rather than an astronomically high 29%.

3. Protecting Your Credit Score

When you use credit cards on your personal account, the usage negatively affects your credit score. You can’t get great loans from banks and private lenders with a bad credit score.

These 0% credit cards and other unsecured lines should be put under your business name, not your personal name. When you use an LLC, this credit usage comes off your personal credit report.

The Right Way to Use Unsecured Lines of Credit

In real estate investing, you always need money. You have a money bucket that constantly needs refilled. This is just one way to fill it.

Using unsecured lines of credit is perfect for the right investor – someone who can treat the credit like a business.

With unsecured credit, you have to stay on top of it. If you put it on your cards, then you should pay it off when the property sells. 

Using a 0% business credit card to fund your personal life leads to nothing but trouble. Misusing unsecured credit in this way is what gives it a bad name.

Investors who use this method get new credit cards every year with new 0% offers. Many investors use them as a stepping stone for the first year or two of their career. Leaning on credit cards early on eventually gets you the funds to move onto more secured or dependable financing sources later.

How Do You Get 0% Credit Cards & Unsecured Lines of Credit?

Curious about how to use 0% credit cards for your real estate investing business? Fund & Grow has some options for business credit that may be right for you.

If you want to put business credit in your name and get up to $250,000, we have a service just for you. Reach out at Info@TheCashFlowCompany.com for more information.

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Credit Myth-Busting: Credit Card Usage Percentage

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Your credit card usage percentage is NOT the amount of debt you owe.

Usage is a percentage based on the amount of credit you have used compared to the amount available. It is not based on the amount of debt you owe.

Two people with the same job, age, gender, etc., can have the same amount of debt, but their credit scores can be completely different.

How does it work?

How Credit Card Usage Percentage Works

Let’s take these two similar people and break down their credit:

  • They both owe $1,000 on credit cards
  • Person A has a credit limit of $1,200
  • Person B has a credit limit of $5,000

It doesn’t matter that they owe the same amount. What matters is that what they owe in relation to their limit.

So:

  • Person A has a credit usage of 83.33% ($1,000 owe/$1,200 limit)
  • Person B has a credit usage of 20% ($1,000 owe/$5,000 limit)

They owe the same amount, but Person A’s usage of 83.33% will negatively impact their score. Meanwhile, Person B’s 20% credit usage percentage will positively impact their score.

How to Avoid the Risks of a High Credit Usage Percentage

So if you can only use 20% of your credit limit before hurting your score… What’s the point of having a credit card at all?

As a real estate investor, the best way to help your score is move your credit card debt to a business card.

The second helpful step is to call your credit card company and ask them to raise your limits. This one trick will automatically raise your score (and lower your usage percentage!).

Other Credit Tips

Check out these other tips to quickly raise your credit score on our YouTube channel.

Send us an email anytime with questions about your credit and real estate investing loans at Info@TheCashFlowCompany.com.

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What Is Credit Usage? (And Why It Matters)

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Your credit score is key to gaining leverage. But usage is key to your score. So what is credit usage?

In simple terms, usage is the amount you have outstanding on your credit cards (and loans) compared to the maximum credit limit the banks have granted you.

Still confusing? Let’s break down exactly how credit usage works.

What Is Credit Usage?

Let’s look at an example with easy-to-follow numbers: 

  • You have a credit card with a limit of $2,000 and a balance of $1,000. (Aka, you’ve put $1,000 worth of purchases on this card. You’re allowed to put up to $2,000 on it.)
  • This means your credit usage is 50% ($1,000/$2,000). So you’ve borrowed 50% of the amount you’re allowed to borrow.

How Does Usage Impact Credit Score?

The higher your usage, the lower your credit score.

In other words, the higher your balances compared to your available credit, the worse your credit score.

If you put a lot of purchases on a credit card, or take a lot from a HELOC or other line of credit, compared to how much of that credit you can use up, then it will negatively impact your score.

What is the Best Usage for Your Credit Score?

Ideal usage is 20% or less. However, ideal usage is not 0%.

You should always use some credit, but never all. To get ideal usage on our example credit card with a $2,000 limit, you should keep around $400 on the card.

Does Credit Usage Matter to Investors?

Usage is the number one factor that holds back real estate investors from getting affordable loans. That’s because usage makes up 30% of what determines your credit score.

Note: Credit usage is not the only factor in your credit score. 35% of your score is determined by how you make (or do not make) your payments. If you’re paying late, or not making payments at all, then you will not have a good score or find affordable loans.

What Is Credit Usage? – How to Learn More

Concerned about your credit? Want to learn more about your credit score and your investing career?

Check out our YouTube videos about credit.

Send us an email anytime with questions about your credit and real estate investing loans at Info@TheCashFlowCompany.com.

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Create the Best Leverage for Your Real Estate Investments

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BRRRR is all about leverage. So how can you arrange the best leverage for these real estate investments?

We’ve helped clients with the BRRRR process for over 20 years. What’s the biggest error we see people make?

They don’t start with the end in mind. So they don’t maximize their leverage.

Many beginning investors take the order of the BRRRR acronym literally. They buy, rehab, rent, THEN try to figure out what the refinance will look like. That’s actually doing BRRRR wrong.

Going into the refinance blindly is not how you get the best leverage for your real estate investments. At best, you won’t know how the property cash flows. At worst, you can’t get a refinance loan at all.

Let’s look at what you need to do instead.

Prepping for the Best Leverage for Your BRRRR

Does it make sense to buy a property (with a higher interest loan), put all the money into repairs, rent it, and THEN figure out whether it’s a good or bad investment?

It takes just a little time and effort up-front to figure out if you can get the best leverage for the property.

We like to call this time up-front “building your BRRRR buyer’s box.” It’s a process that helps you prepare for the refinance ahead of time so you don’t do BRRRR wrong.

Going into a property, you should know:

  • Your max LTV
  • Your cash flow minimum
  • What rehab budget you can afford
  • How much cash you’ll need to bring in.

Creating the Best Leverage for Your Real Estate Investments.

Download our free BRRRR Checklist to understand the numbers of your refinance. Make your rental property a success.

Leverage determines whether you’ve done BRRRR wrong or right. All real estate investing hinges on leverage, and our goal is to help you create the best leverage possible. 

Using the right debt will accelerate your business, while the wrong stuff will slow your investing career to a halt.

Read the full article here.

Watch the video here:

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4 Real Estate Loans You Need To Leverage Deals

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You use real estate loans to leverage deals, but which loan is best?

You should have one goal with leverage: maximizing cash flow on your investments.

There are 4 main types of real estate investing leverage:

  • Hard money
  • Bank financing
  • Hedge funds
  • OPM

But where do they each fit? How can you tell which type of leverage is right for your deal?

It depends on what your particular deal needs most to succeed – speed, low pricing, flexibility, or a little bit of everything.

Speed with Hard Money

What if you have a great deal, but you’re required to close in 5-7 days? In that case, you need hard money.

You’ll meet sellers in your real estate career who just don’t want an extended closing. These sellers would rather you close quickly – and they’ll give you a better deal on the price if you can do it. Sometimes, taking too long to secure your financing can get you kicked out of a deal.

You can call your hard money lender and get leverage fast. There’s no hold-up for an appraisal or trudging through a lengthy underwriting process. Hard money is specifically designed for real estate investing.

Real Estate Loans to Leverage Deals for Every Investor

Even seasoned real estate investors, who do dozens of deals every year, still require hard money from time to time. Every investor runs into deals where they need to close quickly. Whether it’s because your bank won’t be ready in time, you’ve maxed out your line with your hedge fund, or some other unexpected circumstance, you need a hard money lender in your portfolio for speed.

Fast closing can capture a lot of equity on a property. Despite hard money being one of the most expensive forms of leverage, purchase price savings on a quick close can far outweigh the cost of the loan.

Pricing with Banks

If hard money is for speed, then banks are for price.

Finding a bank that loves working with real estate investors is a valuable weapon. If you can build a relationship with the right bank, you can get a better rate and a better closing cost.

Some circumstances when you’d benefit from getting your leverage from a bank include:

  • Whenever you have the time to close. If you can afford to wait for appraisals and underwriting, your loan costs will be much cheaper.
  • If the rehab work will take longer than 6-9 months. When you close on a flip with hard money, you need to complete construction on the property within a month or two. If you use a bank loan, you can afford to spend longer fixing up the house.
  • Any time you want more cash in your pocket! Banks have half the interest rates of hard money lenders. Lower rates and fees mean more money in your pocket by the time your property sells.

Flexibility with Hedge Funds

You might find yourself in need of a lender who is more flexible than banks, but still has an “unlimited” cash supply. In that case, hedge funds will have the right leverage for you.

Hedge funds are also known as capital funds or private equity. These are firms that can fund real estate investments across multiple states, have a lot of money available for both flip loans and DSCRs.

A problem with banks is they’re limited to one state or region. A problem with hard money and OPM is that funds can run dry. Hedge funds solve those problems.

Keep hedge funds in your portfolio to have a lender who can handle every deal. They can grow with you as you move across state lines and take your investment career to the next level.

Gap Funding with Real OPM

OPM stands for other people’s money. It comes from a real person you know (who’s sitting on a lot of cash!). They want to put their money somewhere secure that’ll give them a better rate than a bank… So they loan it to you.

You can give your OPM lender a rate of 5-6% back. For you, this beats the 9-12% rates of hedge funds or hard money. For your lender, this beats the 1-2% rate they’d get from a CD or savings account.

OPM can be used to fill in the gaps of any project. It could cover down payment or construction costs, or potentially fund entire properties.

With reliable OPM, you have access to the speed of hard money, the low cost of a bank loan, and the flexibility of a hedge fund.

The main drawback of OPM is simple: it can run out.

The Right Real Estate Loans to Leverage Deals AND the Right Lender

No one form of leverage is going to be right for every single deal. Understand this: You need a mix of all four types of loans to be truly successful as a real estate investor.

And not only do you need the right loan, but you also need the right lender. Getting to know the lenders in your area is vital.

Find Lenders Whose Real Estate Loans Leverage Deals

Not all banks are willing to work with real estate investors. Banks tend to have a “specialty,” whether car loans, credit cards, or even HELOCs. Many banks don’t want to do deals with real estate investors.

It can be the same with hard money and hedge funds – they’re all looking for a particular client. One of your deals may not fit the criteria for those lenders, but another one will.

There is no one-size-fits-all. Reach out and find the lenders that fit your needs.

Find lenders who focus on real estate investing loans regularly – not lenders who will help investors every once in a while. They’re the lenders who will want your business, and will do everything they can to keep you. For a lender who specializes in real estate investing, a successful investment for you is successful for them, too.

If you have any questions about:

  • The different forms of leverage
  • How to find a good lender
  • Which loan is right for your deal

Send us an email at Info@TheCashFlowCompany.com! Or visit our YouTube channel for more info on cash flow in real estate.

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